Can you explain why USDT is a security but the US Dollar is not? It seems like the only real difference is that one has a wealthier and more powerful issuer than the other (which, obviously, is enormously significant still)
If you say that one of something is worth one of the other, you are promising that you have a bottomless supply of the currency on both sides of the peg. This almost never actually happens and whoever is running the peg will inevitably be caught with their pants down. Bankers specifically love breaking pegs and have the means to do so.
If USDT was run by the Federal Reserve nobody would question the system; because then they'd have the capability to issue both the USDT token and the dollars backing it. They would be considered as fungible as dollars in the bank versus dollars in your hand.
that's true, but only because the US (and the Feds) have had a good history of managing the system well (enough at least).
And if that's the case, USDT is basically USD. It's the same reason why the USD is a reserve currency in the world today.
Tether is attempting to tap into that reserve currency trust (ostensibly, to generate profit for themselves).
It might technically count as a ‘crypto ecosystem currency’ since it is often used to exchange value between different chains/coins/exchanges. But it is very difficult to convert to a recognized currency, so a lot of folks also get unknowingly stuck with it thinking they have dollars. There is a reason USDT is the ticker they pushed for, not TETH or whatever.
When Voyager entered bankruptcy, quite a few people suddenly discovered that the USDC they held on the platform was not the same as USD, did not enjoy the same legal protections USD would have, and that much of it had been loaned out to 3 arrows capital and was not coming back.
The distinction became even more significant when the bankruptcy judge agreed that the bank accounts that were holding actual USD customer deposits were not part of the bankruptcy estate and had to be released back to those customers.
Meh, plenty of currencies—from the Emirati dirham to the Hong Kong dollar—are pegged [1]. International investors would just shit bricks if any of them dared the lack of transparency Tether pulls on crypto users.
[1] https://www.investopedia.com/articles/forex/061015/top-excha...
You're also buying a commitment from the Hong Kong Monetary Authority (HKMA) to convert between Hong Kong and U.S. dollars at fixed exchange rates [1]. That promise is backed by the HKMA's reserves [2]. Tether closely resembles a pegged currency, albeit a banana republic's.
[1] https://www.hkma.gov.hk/eng/key-functions/money/linked-excha...
[2] https://www.hkma.gov.hk/eng/news-and-media/press-releases/20...
Tether does not print their own currency. If USDT goes to zero, you have nothing. It's good nowhere.
Tether prints Tethers. The HKMA prints Hong Kong dollars. They both derive their value from the U.S. dollar. If the HKD goes to zero, one has as much as if Tether goes to zero. (This is tautology.)
The Hong Kong dollar is backed by the Hong Kong government. Tether is backed by no government. Tether is probably lying about its reserves. Hong Kong could just as well convert everyone's HKD to renminbi overnight.
Point is, there isn't something fundamentally currency-like about one versus the other other than state backing.
The fundamental difference between Tether and HKD (or any other currency) is that Tether is not a legally recognized currency.
That may mean nothing to you, or to various other people who think that laws mean less than code, but it means a hell of a lot to most of the world.
The reasons something is a currency is because it is backed up by the power of the state. This includes (but is not limited to) the recognition of its status as legal tender within a the realm of a state, the ability to pay taxes in it, and also the very real guns and batons wielded by said state to enforce said authority.
There is no such thing as a currency that is not backed by some state, or at least some entity enjoying the broad authorities of a state. Tether (along with literally every single crypto product out there) does not.
But because primarily crypto was invented to snooker people who find the entire concept of state authority to be objectionable, this fact will never quite land.
No, they don't. The HKD is pegged to the US Dollar. They engage in open market operations to buy and sell HKD in order to keep the value of it around 7.8 HKD to a USD. This can be very expensive for them to do sometimes, such as right now. There is nothing fundamental about the HKD that makes it worth 12.8 US cents. Its intrinsic value is derived entirely from the fact that you can pay taxes with it in Hong Kong. It can't go to zero because demand for it will always be higher than 0.
On the other hand, the USDT is ostensibly $1 because you bought it for $1. They claim to be backing it with $1 worth of assets allowing you to sell it back to them for $1. This entire thing is about how nobody actually knows what its backed with. It has no other intrinsic value. If Tether doesn't (or wont) buy it back for $1, it's worth nothing. It does nothing.
No, they don't. You are either genuinely confused or engaging in that tiresome crypto game of "well, if we pretend sovereign states (or even Hong Kong like entities) were the same as a corporation, then logically..." Sure. But they aren't, so it doesn't matter. Wishing this weren't true isn't really interesting.
I agree they are functionally similar, it is just a matter of scale. I can write IOUs pegged to the dollar. The only difference is the confidence others have in me.